Supply pressures stoking inflation

Companies in the US are holding on to employees as fewer workers are available and prices are rising in wholesale markets facing supply constraints.

Americans are quitting their jobs at historically high rates, a sign of worker confidence in the job market and a factor in rising wages, an inflation input. Above, a Now Hiring sign hangs near the entrance to a Winn-Dixie Supermarket in Hallandale, Florida. Picture: Getty Images North America/ AFP

Companies in the US are holding on tightly to employees as fewer workers are available and prices are rising in wholesale markets facing supply constraints, both factors contributing to higher ­inflation.

Shortages of materials are driving up the cost of goods, while the tight labour market is pushing up wages.

New applications for unemployment benefits, a proxy for lay-offs, declined to a seasonally adjusted 293,000 last week, the Labour Department said. It marked the first week since the Covid-19 pandemic began in March last year that jobless claims fell below 300,000, though applications remain above 2019’s average. A proxy for the number of people receiving unemployment benefits also fell to the lowest level since March 2020.

A separate Labour Department report showed inflation pressures percolating through the production pipeline. The producer-price index for final ­demand – a gauge of prices that suppliers are charging businesses and other customers – rose 8.6 per cent in September from a year earlier. That was the largest 12-month advance since the series began in 2010.

“Businesses are trying to hire and are holding on to workers,” said Joel Naroff, chief economist at Naroff Economics. “Wages are going up sharply. And inflation is still faster than wage gains.”

The problem, he said, was that a supply chain constrained in part by scarce labour was colliding with unusually strong spending.

“You can open up (the Port of Los Angeles) for 24 hours (a day) and you still don’t have the truck drivers,” Mr Naroff said.

“As long as the supply chain remains broken, we’re going to be in this situation.”

Last month’s 0.5 per cent increase in producer prices from August was driven by rising food and energy prices, which tend to be more volatile, but also reflects climbing prices for a much broader range of goods. Brisk growth in prices charged by wholesalers and retailers signalled stronger pricing power among companies, said Stephen Stanley, chief economist at Amherst Pierpont.

The more closely watched consumer-price index rose 0.4 per cent on the month and 5.4 per cent from a year earlier in September, matching the largest annual gain since 2008. Meanwhile, recent labour market data points to a constrained worker supply.

Lay-offs are easing from last year’s high levels as companies hold on to workers they have and try to fill positions amid strong demand. Job openings reached a record high this northern summer, though eased in August.

Americans are quitting their jobs at historically high rates, a sign of worker confidence in the job market. About 4.3 million employees quit their jobs in August, the highest for records tracing back to 2000.

While workers who leave jobs voluntarily aren’t eligible for unemployment benefits, they often can command higher wages from new employers. Average hourly earnings for private-sector workers rose 4.6 per cent in September from a year earlier.

Mike Brady, owner of Express Employment Professionals of Jacksonville, Florida, a staffing firm, said the average pay was up 22 per cent from a year ago as his client firms struggle to attract workers. His firm specialises mainly in warehouse and light industrial work, including jobs such as welders and forklift operators.

“Clients are doing anything they can to hang on to their employees because they know that trying to replace them is a very tall task right now,” Mr Brady said. Skilled workers – those with experience or a professional licence – now command $US17 or $US18 an hour, compared with $US12 an hour a year and a half ago.

The acceleration in wages was driven by high demand and by higher wages offered by large employers such as Amazon, Mr Brady said. Amazon’s lowest starting wage is $US15 an hour, and the e-commerce company has been offering raises this year as it seeks to hire thousands of workers.

Competing for workers is crimping the bottom lines of smaller businesses. “And what does that cause? Well, it causes prices to go up,” Mr Brady added. “I think we’re just at the beginning of seeing that across the board.”

Job creation did slow in September, but many economists say that reflects a persistent shortage of workers. The share of Americans working or seeking work declined to 61.6 per cent in September and remains well below February 2020 levels.

The Wall Street Journal